Scope 3 greenhouse gas (GHG) inventories can seem very overwhelming. To get over the inertia, it can be helpful to start with a valid inventory now and then set a plan for a truly useful inventory later on.

Over the past two years, there has been more than a little anxiety in the business world about whether the US Security & Exchange Commission would require publicly traded companies to disclose scope 1, 2, & 3 emissions. After considerable delay and suspense, in March 2024 the SEC finally released some watered down guidance that required only scope 1 and 2 inventories, leaving scope 3 reporting voluntary. The main reason for this adjustment appeared to be that many companies insisted it would just be too challenging to gather and report a scope 3 inventory.

But, it’s actually straightforward for nearly any company to prepare a valid Scope 3 greenhouse gas inventory, using the accounting and operations data that most businesses already maintain.

What’s challenging is developing an inventory that’s actually useful for driving real GHG reductions and meeting science-based targets.

Here’s the difference between an inventory that’s just basically valid and one that is truly useful.

GHG Accounting breaks down to a very simple equation:

GHG = Activity Data * Emission Factor

Activity data refer to the processes in your organization that generate climate pollution. Activity data could include gallons of gasoline burned in company vehicles, kwh of electricity used in office buildings, or tons of raw materials used in a manufacturing process. The emission factor is a science-based estimate of the amount of GHG generated per unit of activity data.

Emission factors can come from a variety of resources, including government reports, peer-reviewed research, commercial databases, or even custom in-house studies. For scope 1 and 2 activities, the emission factors are typically very well researched and often regularly updated by government agencies such as the US Environmental Protection Agency.

But for scope 3, emission factor can get really murky, because the sheer diversity of possible activities is so vast. Depending on the company, your scope 3 activity data could include raw materials (tons of concrete, gallons of vegetable oil, etc.) or more abstract services (legal counsel, marketing consultants, etc.). All of these activities involve upstream GHG emissions (e.g. consultants plunking away on laptops powered partly by coal-fired power plants, like I’m doing now).

So how do you find emission factors for all of the activities that make up the life of your company?

The easy – and totally valid- solution is to use Environmentally Extended Input Output (EEIO) models. These may sound complicated, and they are, but an EEIO basically breaks down a national or regional economy into a set of specific sectors or commodity/service type and generates an estimate of upstream GHG emissions per $ of spending, or in other words, an emission factor. For GHG accountants, the two most popular GHG emission sources are the US EPA and Exiobase.

To generate a “spend-based” scope 3 inventory, you simply take your organizations accounting data and map each vendor-by-accounting category combination to a specific commodity or service group in the EEIO tables. Then you multiple the spending in $ by the emission factor to get an estimate of GHG emissions.

For example, let’s say you spend $1,000 on climate consulting services. The EPA EEIO estimates that emissions for the “Environmental Consulting Services” sector  is 0.070 kg CO2e per 2024 USD. The total emissions from this consulting project added to your Scope 3 inventory would therefore be:

[0.070 kg CO2e/$] * $1,000 = 70 kg or 0.07 t CO2e

It’s that simple.

It’s also not all that useful.  The main point of a GHG inventory is to track reductions in emissions over time. If you are using a spend based approach to your inventory, only two things can change the emissions result. Either you:

  1. Wait for the EPA to publish updated EEIO numbers and hope the overall economy gets more efficient in your relevant sectors; or
  2. Use less of the underlying material or service, which might not be possible without sacrificing revenue.

The more useful, but harder approach, requires that you develop accurate, specific emission factors for your most important activities. This will require starting detailed conversations with your most important suppliers and helping them start to share and manage their scope 1,2 and 3 GHG emissions. With more granular scope 3 emission factors, you can then collaborate to help your suppliers take ambitious climate action and build stronger relationships with firms that are able to show real progress.

But don’t drag your feet on developing these custom emission factors for your business. While the SEC punted on scope 3 for now, California moved ahead and in November passed a law requiring that all companies larger than $1B doing business in California need to disclose scope 3 inventories. And the European Union will roll stricter scope 3 reporting requirements in 2024. Most likely, your business does business with some business that does business in California or Europe. That means that your partners may soon be required to share scope 3 GHG information, and they’ll want the most accurate, efficient emissions factor info they can get from their vendors.

Clear Climate Strategies can help you develop the custom factor library your business needs for a useful inventory.

Oh, and we’ve run our numbers. For Clear Clear Climate Strategies, our office and most of our business travel are powered with renewable electricity, so our services come in at just 0.043 kg CO2e per $1000 (% 40 better than the US average).